Monday, December 12, 2016

The Effect of Competition Level and Banking Concentration to Systemic Risks: Indonesia Case

I G. B. Erri Wibowo, Universitas Indonesia, Graduate School of Management and Buddi Wibowo, Graduate School of Management University of Indonesia measure The Effect of Competition Level and Banking Concentration to Systemic Risks: Indonesia Case.

ABSTRACT: This article analyzes relationship between Indonesian banking competition, concentration, and systemic risk considering individual bank charateristics and state variable as control variables. This article uses Panzar-Rosse Model and Concentration Ratio to measure banking competition and CoVaR for systemic risk measurement. The empirical result shows concentration and competition increase the systemic risk. This means increasing competition leads banks to take higher risks (competition-fragility) and banks with high market power tends to charge higher interest rate thus increasing systemic risk. Net Interest Margin as control variable is statistically significant for both models. This shows further support. Size and interbank deposit ratio are significant, meanwhile, profitability, capital structure, and demand deposit to total funding ratio are not significant.

https://lawprofessors.typepad.com/antitrustprof_blog/2016/12/the-effect-of-competition-level-and-banking-concentration-to-systemic-risks-indonesia-case.html

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